Tax Comparison between GST and Existing tax Scenario

All of us know that Govt is planning to introduce GST (Goods and Service Tax) in India which will subsume a number of existing state level taxes (i.e VAT, CST, Entertainment tax, Entry tax, Purchase Tax and Luxury tax) and central level taxes (i.e Excise Duty, Custom Duty and service tax).

The rate of GST may range from 18% to 22% .

Under the model GST law following taxes will apply:

• Central GST / State GST (i.e CGST / SGST) = on all intra-state sales (i.e sale within the state)
• Integrated GST (i.e IGST) = on all inter state sales (i.e CST sale)

Apart from that reverse charge mechanism (as currently applicable in respect of service tax) under which purchaser will pay GST and composition scheme will also apply for those dealers having turnover below Rs 50 lacs.

Under model GST law a person whose turnover is below Rs 10 lacs does not need to take compulsory registration (However for North-East states the above limit will be Rs 5 lacs only).

The radical shift will take place in the way CENVAT credit or Input Tax credit is taken as of now. Under the model GST law, the Input tax credit mechanism can be illustrated with help of following table:

So with the introduction of GST, Input tax credit will be available on tax paid on interstate purchase transaction as well (which is not allowed under current VAT scenario)

GST will be destination based tax i.e more revenue will flow to the states where the goods are actually consumed. Here the exporting state will transfer to centre the credit of SGST used in payment of IGST. Similarly the importing state will claim credit of IGST used in payment of output tax liability in his state. The centre will transfer to the importing state the credit of IGST used in payment of SGST in that state.

This can be explained with the help of below example:

Example: Say Mr K of Kolkata purchased locally goods of Rs 1000 (before tax) on which he paid CGST @ 9% and SGST @ 9%.

He then sold the same goods to Mr M of Mumbai for Rs 1200 (before tax) on which he collected IGST @ 18%.

At the time of discharging his IGST liability he will take Input tax credit of CGST and SGST paid in following manner.

Now the state of West Bengal will transfer Rs 90 to centre on account of SGST used in payment of IGST.

Now say Mr M of Mumbai sell such product locally at Rs 1500 (before tax) then he will collect CGST @ 9% and SGST @ 9%. His final payment of tax would be as below:

In such a scenario Centre will make payment of Rs 81 to Maharshtra state (i.e IGST-CGST (216-135)} on account of IGST used in payment of SGST.

A detail calculation sheet is attached with this article which clearly shows tax impact under existing as well as proposed GST scenario. Hope readers will find the same useful.

Download Excel Sheet